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Gendler v. Telecom Equipment Corp.

Decided: May 29, 1986.

CHARLES GENDLER & CO., INC. PLAINTIFF-RESPONDENT,
v.
TELECOM EQUIPMENT CORPORATION, DEFENDANT, AND NIPPON ELECTRIC CO., LTD., DEFENDANT-APPELLANT



On certification to the Superior Court, Appellate Division, whose opinion is reported at The opinion of the Court was delivered by Pollock, Justice. Wilentz, C.J., and Clifford, Handler, O'Hern, Garibaldi and Stein, JJ., join in this opinion.

Pollock

[102 NJ Page 466] This appeal questions whether an international corporation is subject to the personal jurisdiction of the New Jersey courts in an action for breach of contract arising from the sale of an

allegedly defective telephone system. The issue is raised by defendant Nippon Electric Co., Ltd. (Nippon), a Japanese corporation with its principal place of business in Tokyo. Nippon has a wholly-owned subsidiary, NEC America, Inc., which is authorized to do business in New Jersey and in turn wholly owns another subsidiary, NEC Telephones, Inc. Both NEC America and NEC Telephones are New York corporations.

Nippon manufactures telephone equipment and other products in Japan and sells them to NEC America, which then distributes the products to NEC Telephones. In this case, NEC Telephones sold Nippon telephone equipment to Telecom Equipment Corporation, a New Jersey corporation with its principal place of business in Long Island, New York. Telecom then sold the equipment to plaintiff, Charles Gendler & Co., Inc. (Gendler), a New York corporation authorized to do business in New Jersey, for installation at Gendler's premises in Belleville, New Jersey. At oral argument, Nippon acknowledged that the sale of its telephones to Gendler is not an isolated transaction and that other Nippon products, including computers and telecommunications equipment, may have been sold in New Jersey.

In the Gendler contract, which provides that it is to be construed according to New York law, Telecom warranted "the Equipment against defective parts of [sic] workmanship for a period of one year from the date of its installation." Alleging that the equipment did not perform as warranted, Gendler sued Telecom and Nippon, but not NEC America or NEC Telephones. Gendler settled with Telecom, but Nippon contends that it is not subject to the jurisdiction of the New Jersey courts.

The Law Division granted Nippon's motion to dismiss, finding that Nippon did not have sufficient contacts to subject it to the court's jurisdiction, but the Appellate Division reversed, 199 N.J. Super. 227 (1985). We granted certification, 102 N.J. 318 (1985), and now reverse the judgment of the Appellate Division and remand the matter to the Law Division for the development of a more complete record.

-I-

In support of its motion to dismiss, Nippon submitted a certification by the general manager of its 1st North America Division reciting, in part, that Nippon manufactures "telephone equipment for sale to companies throughout the world." Gendler did not submit any affidavit or other proof in opposition to Nippon's motion to dismiss. At oral argument, however, Gendler's counsel informed us that before the matter was submitted to the Law Division, he had served on Nippon's counsel a Notice to Produce documents relating to the amenability of Nippon to the jurisdiction of the New Jersey courts. Nippon did not provide the requested information, and Gendler did not enforce the request. As a result, the record is barren of any information about the extent to which Nippon purposefully availed itself of the opportunity to sell its telephones in New Jersey.

In granting Nippon's motion to dismiss, the Law Division observed that Nippon is not authorized to do business, and has not conducted any business, in New Jersey. No Nippon officers, agents, or representatives are located here. Nippon has not advertised for or solicited business in New Jersey, and it does not have a telephone listing in the State. Furthermore, Nippon did not contract with Gendler for the sale of its telephone equipment and has not visited Gendler's plant. Nippon has not received any direct income from Gendler or any other New Jersey residents, and nothing indicated that Nippon was aware of the system for the distribution of its telephone equipment. As a result, the Law Division concluded that Nippon lacked sufficient minimum contacts to subject it to the jurisdiction of the New Jersey courts.

In reversing, the Appellate Division adopted the stream-of-commerce theory, under which a foreign manufacturer subjects itself to jurisdiction "whenever its products are deliberately marketed into the 'stream of commerce' notwithstanding the presence of independent corporations in the chain of distribution."

199 N.J. Super. at 235. The Appellate Division found that Nippon's two subsidiaries obviously distributed Nippon's products in the northeastern United States and that, in effect, they were the merchandising arms of Nippon. Id. at 229-30. Deliberate sales efforts of Nippon's distributors resulted in the sale of Nippon's products, including its telephone equipment, in New Jersey. Because Nippon manufactured an allegedly defective product that was sold through its distribution chain to a corporation located in New Jersey, Nippon was subject to the jurisdiction of the New Jersey courts. As a result, the Appellate Division reversed and remanded the matter to the Law Division.

-II-

A state court's assertion of personal jurisdiction over a defendant must comport with the due-process requirement of the fourteenth amendment. Rule 4:4-4, this state's equivalent of a "long-arm statute," permits service of process on non-resident defendants "consistent with due process of law." Consequently, "we will allow out-of-state service to the uttermost limits permitted by the United States Constitution." Avdel Corp. v. Mecure, 58 N.J. 264, 268 (1971).

Originally the United States Supreme Court construed the due-process clause to require the personal presence of the defendant in the jurisdiction. Pennoyer v. Neff, 5 Otto 714, 95 U.S. 714, 24 L. Ed. 565 (1878). In this century, recognizing that the requirement of corporate presence did not comport with the reality that corporations frequently conduct business across state lines, the United States Supreme Court ruled that:

due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'

[ International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95, 102 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 343, 85 L. Ed. 278, 283 (1940)).]

The purpose of the minimum-contacts test is to insure the fairness and reasonableness of requiring a non-resident to defend a lawsuit in the forum state. Id. at 317, 66 S. Ct. at 158, 90 L. Ed. at 102. Given this focus, the jurisdictional test is not to be applied mechanically. Rather, "the quality and nature of the (defendant's) activity in relation to the fair and orderly administration of the laws" must be examined on a case-by-case basis to determine if the minimum-contacts standard is satisfied. Id. at 319, 66 S. Ct. at 159-60, 90 L. Ed. at 103-04; see, e.g., Kulko v. Superior Court of California, 436 U.S. 84, 92, 98 S. Ct. 1690, 1697, 56 L. Ed. 2d 132, 141 (1978).

Basically, the due-process limitation protects the defendant's liberty interest in not being subject to the entry of a judgment in a jurisdiction with which the defendant does not have sufficient minimum contacts. Burger King Corp. v. Rudzewicz, U.S. , , 105 S. Ct. 2174, 2181-82, 85 L. Ed. 2d 528, 540 (1985). By precluding state courts from unfairly requiring non-residents to defend themselves, the due-process clause also insures that a state's grasp does not exceed its jurisdictional reach. Nonetheless, the primary purpose of the restriction on state court jurisdiction remains to preserve the defendant's liberty interest. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 n. 10, 102 S. Ct. 2099, 2104 n. 10, 72 L. Ed. 2d 492, 501 n. 10 (1982). By focusing on the non-resident defendant's contacts with the forum, the minimum-contacts test protects that interest.

Over the years, the Court has pronounced certain principles to guide the determination whether it is fair to subject the defendant to suit in the forum. The defendant's contacts with the forum state must be such that it "should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490, 501 (1980). As a result, the minimum-contacts test "gives a degree of predictability to the legal system that

allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit." Id. A defendant is on notice that it is subject to suit when it "purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 1240, 2 L. Ed. 2d 1283, 1298 (1958); see, e.g., Burger King Corp. v. Rudzewicz, supra, U.S. at , 105 S. Ct. at 2182, 85 L. Ed. 2d at 540-41; World-Wide Volkswagen Corp. v. Woodson, supra, 444 U.S. at 297, 100 S. Ct. at 567, 62 L. Ed. 2d at 501. It is the purposeful act of the defendant, not the unilateral activity of another who merely claims a relationship to the defendant, that connects the defendant to the forum. Hanson v. Denckla, supra, 357 U.S. at 253, 78 S. Ct. at 1239-40, 2 L. Ed. 2d at 1298.

Although the minimum-contacts test centers on the defendant's relationship with the forum state, the sufficiency of the contacts for jurisdictional purposes depends on "the relationship among the defendant, the forum, and the litigation * * *." Shaffer v. Heitner, 433 U.S. 186, 204, 97 S. Ct. 2569, 2580, 53 L. Ed. 2d 683, 698 (1977). When the cause of action arises out of the defendant's contacts with the forum state, it is more likely that the contacts will subject the defendant to the jurisdiction of the forum than if the cause arises from unrelated contacts. If the cause is related to the defendant's contacts with the forum state, an isolated act may be sufficient to subject the defendant to the jurisdiction of the forum. For example, the delivery of a life insurance policy to California, together with the payment of premiums from that state and the insured's residence there at the time of his death, was sufficient to exercise jurisdiction over a Texas life insurance company. McGee v. International Life Ins. Co., 355 U.S. 220, 223, ...


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